If 2009 taught any saver anything, it was that no amount of extra return can compensate you for losing some or all of your investment. When times become as uncertain as they have over the past few years, capital preservation rises in your priorities.

The safest investments are usually with governments - the govenments of western democracies at least. They have the power to tax their citizens when times become tough, so the chance a saver will loose out when investing in a government security should be very low indeed.

In fact, the definition of a risk-free return is one [usually] made in a US Treasury bond. New Zealand bonds yield a higher return on the basis that the sovereign risk is higher here than in the US. Maybe the basis of that understanding is up for debate these days, but it is certainly still true in the money markets - NZ securities yield more than US ones.

But there is a surprisingly wide range in yields and returns when investing in NZ Government offerings.

According to Standard & Poors, the NZ Government has a credit rating stated as follows: for domestic exposures it is rated AAA, for foreign exposures AA+. Given our high current account deficit, it is hard to see how our credit rating could be any better than this.

As at the end of 2009, however, you could earn the following returns from NZ Government offerings:

NZ Government Stock due 15 Nov 2011 returns 4.20% pa.
retail Kiwi Bonds , issued by the NZDMO return 2.75% for a 1 year term
the Public Trust offers a one year TD at 3.70%
and among the state-owned enterprises,
Genesis Energy's 15 March 2014 bond is yielding 6.70%
NZ Post's 15 March 2014 bond is yielding 7.25%
although you can only get a yield of 6.50% for the bond of one of its divisions, Kiwibank.
But if you made a term deposit at a Kiwibank branch for a similar three year term, you would only get 5.75%. For one year it is 5.20%*
All the options above are for returns that are taxable.

(*But you can embellish your after-tax returns by investing in a Kiwibank PIE .)

The chance that the Government would walk away from the obligations of one of its wholly-owned enterprises is nil. Admitedly, that's just my opinion, but they will never do it. Heck, they currently have in place taxpayer support for banks, building societies, credit unions, and most finance companies for which the state has zero ownership - they are always going to bail out state-owned businesses, global financial crisis or not.

On this basis, the 2.75% offered on retail Kiwi Bonds looks like the state is taking advantage of small savers - and so does the Public Trust. At the other end of the scale, NZ Post's 7.25% yield for a 7.50% coupon bond that has 3 years to run looks almost too good to be true, and way better than that same SOE is prepared to offer its retail customers at Kiwibank.

If you are looking for a risk-free investment in New Zealand, you have a surprising range of choice, and an even more surprising level of return available. You just might have to go into the moneymarkets via a stock broker, however, to access the best state-backed returns.

Compare them to what is on offer at other financial institutions, here and here.